Policy comparisons for the self-employed
Income protection insurance is often ignored by the self-employed and small business owners. Self-employed people typically place other policies ahead of income protection, such as public liability cover, products liability, professional indemnity, general property, fire and perils, burglary, and worksafe injury cover.
However income cover is perhaps one of the most important types of policies for self-employed people. Just think, if you were to suffer from a sickness or accident, how would your business cope?
Coverage is perhaps even more important for sole traders & contractors, whose personal effort directly affects the business success or failure.
What is income protection insurance?
This type of personal cover provides up to 75% on your income if you suffer from a sickness or accident. With the funds from a claim benefit, your income can continue and you can focus on recovery.
Unlike other types of coverage, it protects your ability to earn an income, thus helping to fund any personal payments such as your mortgage, rent, food, and bills.
How much does income protection cost?
There is a perception that income cover is expensive, but nothing can be further from the truth.
In fact, income protection is generally tax deductible. The Australian Taxation Office (ATO) views claim benefits as assessable income, thus qualifying the premium as a tax deduction. The tax deductible amount should be outlined in your policy schedule (once you've purchase cover).
If you pay your premium before June 30th you can claim a deduction this financial year. If payment is made after this date, you will have to wait until the next financial year to claim a tax deduction.
Best policy types for the self-employed
If your business is susceptible to market conditions and your income fluctuates as a result, you may be wondering which policy structure you should choose. As a self-employed person this may not be an easy choice, however below are some guidelines to consider.
Agreed value - if you are concerned about fluctuating income, this type of policy can provide certainty at claim time. Your monthly benefit amounts are financially proven at application time, not at claim time. It offers peace of mind knowing how much you will receive should you have to make a claim.
Indemnity value - with this type of policy your benefit amount is financially proven at claim time by typically looking at your last 12 months of income. In the past, most self-employed people have steered clear from this type of policy due to fluctuating income levels. However over the years this style of policy has evolved, offering self-employed people more options with select insurers looking at the best 12 months in last 3 years prior to claim. With this in mind this type of policy may be worth considering, depending on your situation.
Both policy types offer benefits, however it is important to speak to xLife before making a final decision to ensure you have a policy that best suits your needs.
Compare income protection policies for the self-employed
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